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25 Steps to Becoming a

Successful Real Estate Investor


Copyright James J. Francis 2000

This publication is designed to provide accurate and authoritative information in regard to the subject matter
covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or
other professional service. If legal or other expert assistance is required, the services of a competent
professional should be sought.
25 Steps to Becoming a Successful Real Estate Investor
Action Plan for the Next 30 Days

1. Set goals
2. Understand the principles of a good deal
3. Review classified ads
4. Read real estate magazines
5. Drive through neighborhoods
6. Be organized — Be prepared
7. Convey a professional image
8. Tell associates, friends and peers
9. Review telephone scripts
10. Draft a contract or agreement of sale form
11. Understand contracts and agreements
12. Call 10 to 20 sellers
13. Recruit a Realtor or title company
14. Visit the courthouse
15. Inspect the property
16. Prepare the offer
17. Present the offer to the seller
18. Develop a database of buyers
19. Maximize your credit
20. Take your banker to lunch
21. Check out the “money available” classifieds
22. Build your team
23. Look in the “For Rent” classifieds
24. Attend an auction
25. Explore advanced real estate strategies

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Introduction

Real estate is an outstanding investment, one that historically has increased in value more than the
rate of inflation. Real estate also provides numerous tax benefits, a good source of cash flow and a
tax shelter through depreciation. As long as inflation eats up the purchasing power of the dollar,
people will continue to invest in real estate as a hedge against inflation. This phenomena, coupled
with an ever-increasing population, will add to the future demand for real estate.

You have made a wise decision in purchasing this program. Our real estate program contains
powerful, proven strategies and resource material designed to give you the experience of seasoned
real estate investors. This booklet, 25 Steps to Becoming a Successful Real Estate Investor, will
help jump-start your venture into real estate investing and guide you in the right direction using a
simple step-by-step approach. Completing each of the steps will put you well on your way to
financial success through real estate investing.

Take advantage of our consulting program. Our consultants are real estate professionals with years
of experience conducting real estate transactions. Tap into their experience and expertise.

It’s now time to embark on a new and exciting journey to achieve your financial goals through real
estate investing. We are proud that you have chosen our real estate investing program to guide you
down the road to financial freedom. There will be many forks and curves—perhaps even some
potholes along the way—but if you review our material on a regular basis and work with our
consultants, you will be well on your way to success.

We wish you the best in your journey to reach your financial goals through real estate investing and
look forward to receiving your personal success stories.

Let’s get started!

—James J. Francis

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Goals
The first step is to define your motivations for wanting to become involved in real estate investing.
Are you looking to create long-term investments? Do you want to become financially independent?
Are you going to work on this part-time until you can replace or surpass your present level of
income or are you going to jump into this full-time? Whatever your aspirations, you will need to
establish a clear-cut direction to achieve your objectives through the use of goals.

Goals are milestones on the road to accomplishment. Studies have shown that the most successful
people are the ones who have clearly defined goals with detailed action plans. Written goals are a
powerful means of reaching personal dreams. Your success is actually the progressive, timely
achievement of your stated goals.

Defining what you are after is 50% of the battle. Before you proceed any further with this program,
sit down and take the time to list what your goals in real estate are going to be, using the forms
provided. The more specific your goal, the more quickly you will be able to identify, locate, create,
and implement the use of the necessary resources for its achievement. Always focus on the results
you want to achieve, not the process. Focusing on the results helps to create your road map.

To be effective, goals must be SMART:


Specific: “I want to be successful in real estate” is a wish, not a goal. For it to be a goal, you
must define exactly what successful is for you.

Measurable: “I will purchase three foreclosed properties within the next ninety
days.”

Action-Oriented: Use action words in your goal statements to set direction and
establish momentum.

Realistic: Goals must stretch you out of your comfort zone, but not be
unrealistic.

Timely: Target completion dates should be included with every goal statement. “I will
complete_________ by January 1, 2002.”

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In the space provided, write down two or three of your real estate investing goals. Then create an
action plan by listing specific steps that will need to be completed in order for you to reach those
goals. For example:

Goal: I will purchase my first FSBO (For Sale by Owner) investment property

Target Completion Date: Two months from today’s date

Action Steps:
1. I will identify 50 potential FSBO properties from newspaper classified ads.
2. Before the weekend, I will narrow the list by half using the ABC rating system I learned in the
25 Steps to Becoming a Successful Real Estate Investor guide.
3. I will contact 20 FSBO owners by phone this week.

Real Estate Goals

Goal: __________________________________________________________________
Target Completion Date: ___________________________________________________
Action Steps:
1. __________________________________________________________________
2. __________________________________________________________________
3. __________________________________________________________________

Goal: __________________________________________________________________
Target Completion Date: ___________________________________________________
Action Steps:
1. __________________________________________________________________
2. __________________________________________________________________
3. __________________________________________________________________

Goal: __________________________________________________________________
Target Completion Date: ___________________________________________________
Action Steps:
1. __________________________________________________________________
2. __________________________________________________________________
3. __________________________________________________________________

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The speed with which you are able to achieve your goals is directly related to how clearly and how
often you are able to visualize your goals. Your subconscious mind works to make your mental
pictures consistent with the outer world. You move toward the things you think about, whether you
want to or not. Your outward thought process directly affects your outward reality.

Visualization is the process of creating a mental picture of what you want to happen as if it has
already happened. Visualizing a goal is like giving a direct order to your mind to apply its full
power to the goal’s accomplishment. The greater the detail and clarity of your thought pictures and
the more often you picture what you want, the more quickly you are likely to see results and to
overcome the apparent obstacles between where you are and where you want to be.

To help you “see success,” place your Top-10 Goals where you will see them every day. Make
visualizing your goals a regular habit.

What is a Good Deal?


Real estate has the same characteristics as any other type of investment. There is an investment
amount (down payment, purchase price), a return on investment (rent cash flow, appreciation) and
risk (market risk, trend analysis) involved. Your objectives are to maximize your return on
investment and minimize your risk.

Before you venture into real estate investing, an important step is to understand several fundamental
principles to ensure a proper return on your investment of time and money. Knowing a “good deal”
is critical to your overall success. Although the definition of a “good deal” may vary with each
individual real estate transaction, the benchmarks below should represent acceptable minimums.

10-10-10 Rule
Avoid putting more than 10% down on a property. Use the power of leverage by using other
people’s money so you can tie up as many properties as you can with the least investment possible.
Avoid getting involved with a property that has more than a 10% annual interest rate. In the long
run, this interest rate can diminish your overall return on investment.

Purchase properties you plan to hold or renovate a minimum of 10% below fair market value, not
the listing price.

The 80% or Less Ideal


To provide an opportunity to quickly turn around your investments or to “flip” properties, your
objective should be to acquire properties at 80% or less than fair market value. If you can purchase
a property for 80% of fair market value, you most likely can resell it for 90% rather quickly. This is
an important consideration, especially in the beginning when you may be cash poor and can’t afford
to hold onto a property for an extended period.

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Return on Cash Out of Pocket
If you are investing in rental properties, be sure the cash flow provides at least a 20% return after
mortgage, interest, taxes and insurance payments are deducted. Otherwise you should consider a
straight investment in another type of financial vehicle.

Where Do I Start?
Most first-time real estate investors begin by acquiring single-family homes or duplexes. Strategies
for investing in commercial properties or apartment complexes will be discussed later in this
material. One of the best ways to discover good real estate deals for single-family homes and
duplexes is to review the classified ads in your local newspaper. The majority of real estate
classifieds are placed in the Saturday or Sunday editions. When you review the ads, you will need to
have several colored pens or markers on hand to circle the ads you want to call.

Check out the Classified Ads


For now, do not be concerned about the price range of the houses. We want you to start recognizing
the ads that show seller motivation. Look for terms such as:
Price Reduced For Sale by Owner (FSBO)
Non-qualifying Loan Nothing Down
Must Sell Out-of-Town Owner
Desperate Out of Town
Moving Motivated Seller
Transferred Will Sacrifice
Illness Forces Sale Repossession
Bankruptcy Estate Sale
Foreclosure Investment Property
Below Market Distressed Property
Below Appraisal Seller Anxious
Bought Another House Reduced
Divorce

Coding Ads: A, B or C
When you find ads with these words in them, circle them. Then use an A, B, or C rating system.
The ads that show the most motivation (those having multiple words from the above list) mark with
an “A,” those with less motivation get a “B” and those with just some motivation rate a “C.” You
will use these markings to determine which ads you should call first.

Stay away from ads that are long and flowery, ads that describe amenities, location or great views.
These people are trying to sell their property at the full market value and probably have no intention
of entertaining a low offer from you.

You will often find that short, concise ads lead to good deals. Usually these are FSBOs (For Sale by
Owner), and the brevity of the ad indicates that the owner has little or no extra money.

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Pick up Real Estate Magazines
Another way to find available single family and duplex properties is to stop by a local grocery store
or convenience store and get a copy of real estate magazines. Ideally, they would carry “For Sale by
Owner” publications comprised of representative samplings of the properties that are not listed with
Realtors. Start with FSBOs. You are more likely to be able to negotiate a “no down” or “low down”
deal. This is because the sellers do not have to pay a 6-7% commission to the broker, so they have
more flexibility in the terms they will accept. You also have a greater likelihood of getting the
sellers to accept a purchase money mortgage (PMM) or owner take back (OTB) as part of the
purchase price in lieu of receiving all cash for their equity.

Other real estate publications will also be helpful. The majority of the ads are placed by Realtors,
because this is a very cost effective way for them to advertise. Use these publications as a means to
gather more information about the areas in which you want to invest. Should you choose to
concentrate on one particular geographic area, these publications will show you the asking price of
other properties so you can determine the high end and the low end of the market.

In addition, some Realtors will list their foreclosure properties. Many lenders turn to Realtors to sell
their REOs (Real Estate Owned) as soon as they receive title to the properties. This will become an
important source when you start investing in foreclosures, a more advanced strategy for real estate
investors.

When you finish reviewing these magazines, establish a place to keep them in your office. You will
want to refer to them in the future to notice market trends or to see how long a property has been on
the market.

Drive the Neighborhood


The best method for gathering information about a specific area of the real estate market and for
locating recent listings or FSBOs is to drive through the neighborhood. Every time you get into the
car, you have another opportunity to expand your knowledge of the market. Whether you are
driving to work, to the store, or to pick up your kids, use your time wisely. Even though it may take
a little longer to get to your destination, take a different route every time so you can learn more
about surrounding neighborhoods.

Attend open houses to visually compare the interiors and amenities of homes in various price
ranges. Often it is difficult to evaluate the true market value of a home over the telephone. By
taking advantage of the opportunity to see a home or a comparable home in particular
neighborhood, you will strengthen your overall market knowledge.

For those who have not decided on an initial real estate investment focus, we recommend you start
by looking for single-family homes with three bedrooms and two baths in the mid-price range.
High-end homes usually take a long time to sell, and low-end homes generally require some
construction, which you should not pursue at this time.

Always carry a legal pad and a pen, or better yet, a hand-held microcassette recorder to record all of
the FSBOs that you see. Take down the street address, the subdivision and the phone number so you
can call the seller. Even if you don’t work a deal on that property, it gives you information on the

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market that you can use for future evaluations. “Work smarter, not harder,” is one of the credos you
should learn to live by!

What should you be looking for in a neighborhood?


You want to find the areas that we call “We Care” neighborhoods. The houses are all nicely
appointed, the lawns are groomed and there is no trash or visible debris. The neighborhood should
be conveniently located near shopping, schools, parks and churches. When you find communities
like this, look for FSBOs that have not been maintained in the same way as surrounding houses.
Maybe the grass is too long, or the exterior needs painting, or some other sign that the owner has
some financial problems. These are the deals you might not even see in the classified ads because
the people don’t have enough money to advertise. When you find properties, be ready to ACT!

Get Organized
Now is the time to get your home office and systems organized. Before you start following up on
the real estate ads or contacting owners from properties you identified during your neighborhood
drive-throughs, make sure your home office will accommodate your present and future needs.
Below is an outline of some basic items:
A desk, reading lamp and a comfortable chair (because you will hopefully be spending a good deal
of time establishing your real estate business).
A phone line dedicated solely to your real estate business with an answering machine or a voice
mailbox with remote access.
A two or four-drawer file cabinet with hanging folders and plenty of files (legal size is preferred
because most contracts come on legal-sized paper).
A financial calculator. This will be a necessity when you are negotiating with sellers and need to
know how to change the terms of the deal to fit the needs of the seller. You can buy one of these
calculators for less than $50.

If you have sufficient capital, you will want to add a computer, a fax machine, and a copier to your
office. If you do not have the capital to buy these initially, go back and add them to your goals list.

Even though you may start out in real estate investing working part-time out of your house, it is
important that you create a professional image. When dealing with homeowners of FSBO
properties, an image of experience and professionalism may give you negotiating leverage. Your
appraisal of the homeowner’s property or offer will tend to have more credibility if conveyed
through a professional image.

So how do you project the persona of the experienced real estate investor when you are working at
it five to 10 hours a week in the extra bedroom in your house? One important means is through
having professional-looking stationery and business cards. Although most seasoned real estate
investors prefer to maintain a low profile, business cards for the beginning real estate investor can
be a valuable tool. Your business card can provide information on how to contact you, can keep
your name prominent in the minds of homeowners with whom you have spoken and can be
distributed to friends, relatives and business associates for future leads and referrals.

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Get Some Business Cards
Your business card must convey the proper image and message so when people look at them, they
know who you are and what you do. The colors and typestyle selected also convey a message, both
on the conscious and subconscious levels. You should select the right combination of style, shape,
graphics and format to enhance your image.

If you are operating out of your house, and your address belies that fact (for example: 456 Fox Trot
Lane), do not use it in your business card or stationery. Either establish a P.O. Box or simply leave
it off.

If you are already working in several real estate services (for example, discount mortgage, mortgage
reduction, foreclosures, investment properties), put a list of them on the back of your business cards.
Networking is an effective means to expand your business. Since you cannot possibly know
everything that is going on in the real estate market, put other people to work for you. Inform your
friends and relatives of what you are looking for in the real estate market and what you can provide.
The best networking sources are officers at trust departments in banks, credit unions, real estate
attorneys and real estate brokers. These professionals will bring a wealth of information, contacts
and experience to your real estate endeavors. Distribute your business cards to your friends and
business associates. Explain that you are interested in investing in real estate and would appreciate
any referrals or leads they could provide. Make sure they think of you by providing them with
incentives and by giving them something special for any leads that you end up closing. There are
many ways to reward these people:
Treat them to lunch or dinner.
Give them a small piece of the profit.
Provide them with tickets to a ball game or some other form of entertainment.
Buy some plants for their home.
Be creative. Match the gift to the person to make sure it is special to them. As they refer more
business to you, make the gift a little better each time. This way, you will ensure that they will go
out of their way to help you succeed. Share your success with the people who help you on the road
to long-term wealth and you will all be winners.

Your next step is to determine the information you will need to gather in your phone conversations
with sellers. Start by making 50 copies of the Real Estate Information Sheet found in this material.
Spend time making sure you understand all of the information requested on this sheet. If you have
any questions about the form’s content, call your consultants and have them explain the material in
terms you understand.

Review the telephone scripts included in this section. The more information you can obtain in the
initial phone call, the better your chances of making an informed decision on whether to proceed
with this property. Your time is VALUABLE; don’t waste it! If you feel you are trying to put
square pegs in round holes, forget the deal!

Try practicing real estate investor phone calls first with your family or friends. Call them as if they
had some property to sell and go through the questionnaire. Once you feel comfortable with the
Real Estate Information Sheet and the script, you will be ready to start making calls on properties.

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Real Estate Information Sheet

Property Address: _______________________________________ Phone:


Area/Subdivision/Zoning: ________________________________ Contact:
Price: $_____________ How did you come up with the price?
How much do you think your house is worth? __________ How do you know?
How long has the house been for sale? __________ Why are you selling?
How quickly do you need to close? _________ How does your house compare with others in the
neighborhood?
Square footage: ___________ BR _________ BA ________ GAR _________ FR _________
Other:
Amenities: Central Air __________ Type of Heat __________ Water heater
Construction: CBS Frame Roof: Shingle Tile Built-up Rock Age?
What appliances or other items are included?
Is there any fix-up work that needs to be done?
What is the balance of your mortgage? __________ Interest rate? ______ Term?
What type of mortgage? Conv FHA VA Assumable Fixed ARM Balloon
Payments per month: Principal & Interest: $_______ Taxes: $_______ Insurance: $
Additional mortgages? Amount / interest rate / payment / years left
Flexible on terms? _________________ Flexible on price with cash offer?
INCOME PROPERTY Number of units? __________ Monthly rent per unit: $
Utilities included? ______________ How many units are presently occupied?
Leased or month-to-month? _____________ Good rental neighborhood? Yes No

NOTES:

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Telephone Scripts
If you were to visit all the properties available in your market, it would take forever. A quick
telephone survey and a record form are your best tools to maximize your time and effort. Below
you will find sample survey scripts and questions you should ask to get the ball rolling.

Script #1
“Hi, my name is ____________________. I am a real estate investor and would like to discuss
your property for sale. Is now a good time? (If not, schedule a time to call back.) I’m looking at
several properties and just need to take a few minutes to see if your property would be of interest to
me. If it is, I would put an offer on it within 24 hours.”

Script #2
“I am a cash investor. I try to solve the problems that many sellers face. Maybe I can be of help to
you, too? Is now a good time?” (If not, schedule a time to call back.)

“The inactivity of real estate agents usually causes longer selling times for a house — selling time
that could drag on for months or even years. A prospective buyer would most likely have to qualify
for a loan. As time goes on, it could cost you a lot of money to keep paying the mortgage and
because of real estate commissions, you end up getting less for your property than you should.

“With Realtor commissions and closing costs your total expenses can add up to more than 15% of
your asking price. For the right price, I will pay you cash and offer a quick closing for your
property.
“Do you feel that we can work together?”
(Common Concerns)
If the homeowner does not want to discuss the information:
“I don’t want to waste your time or mine and I’d like to put an offer on the property as soon as
possible.”
“This is a common discussion in the sale of a property . . .” (ask next question).
If the homeowner wants you to see the property:
“I would love to after I get the answers to a few more questions.”
If you are dealing with a FSBO (For Sale By Owner), you will need a Contract or Agreement of
Sale template on which to write up your offer. Most people are intimidated by contracts, particularly
when it comes to real estate. You will want to present a user-friendly, professional-looking
document that solidifies and formalizes the verbal agreement. Consider having an attorney familiar
with real estate law prepare a user-friendly form for you. Make sure that any form you use includes
these specific items:
Legal description
Purchase price and method of payment
Time for acceptance and effective date
Title evidence
Closing date
Occupancy on or before date of closing
Assignability
Deposit of receipt

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Use Addendums to Create Out-Clauses
In addition, contingency clauses should be built into the contract to provide an “out” if you need it.
Examples for consideration are listed below.
Subject to inspection of property by buyer and written acceptance of condition of property within 7-
14 days.
Subject to Buyer obtaining financing in the amount of $___________ at an interest rate of
_______%.
Subject to approval of my (accountant, spouse, partner, attorney).
Subject to a satisfactory roof, plumbing and electrical inspection to be done within ___ days after
the date of this contract. Inspection to be paid by seller.

Other examples of clauses beneficial to the Buyer:


Seller to pay all recording fees and one-half of buyer’s closing costs.
Seller to paint the property inside and/or out.
Seller to guarantee all appliances for 90 days from close of sale.
Seller to leave premises in “move-in” condition and free of all trash and debris.
Possession before settlement — Buyer to receive key to property and right to enter for purposes of
physical improvements to property and to show the property to prospective occupants.
Cash credit to buyer for fix-up work — Buyer to receive credit at settlement toward down payment
for $_________ for painting, carpeting and general improvements to be made to the property.

Use a Strong and Powerful Contract


Buying a property requires a real estate contract or purchase offer agreement. The contract outlines
the “agreement” between the buyer and the seller of the property. Contracts can be very
complicated but it is important for you to understand some basic contract law to ensure that you
limit your liabilities and capitalize on the opportunities available. In this section we will cover the
basics of contract law, agreement and offers.

A contract or agreement is essentially the agreement of two or more individuals. Not all contracts or
agreements need to be in writing. However, real estate contracts must be written. A contract or
offer is not legally binding upon the presentation of the contract. However, once the agreement is
accepted in writing, both individuals are bound by the agreement according to the terms and
conditions of the contract. The person or entity that makes the offer can withdraw the offer at any
time prior to acceptance.

In the event the contract or agreement is accepted in writing, the document is the basis for handling
the sale of the property. The individual preparing the transfer of ownership will use the document as
the guideline for the transfer. The transfer agent may be a title company, banker or real estate
attorney. The agreement will tell the transfer agent how to distribute funds, how to transfer the
ownership title, will determine what stays with the property, what goes, what to do with the
outstanding mortgages and will indicate the rights of the parties.

There are dozens of types of real estate contracts and agreements: Purchase and sale, lease option
contracts, options contracts, rental agreements and many more. You will want to review the various
types of contracts and become familiar with their format and text. Sophisticated transactions should
be referred to a competent real estate attorney.

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Many transactions require additional conditions and terms not included in your basic forms. Extra
information, conditions and terms are agreed to by adding a sheet of paper to the contract called an
Addendum. In the original agreement, contract or offer you may see a note on the contract, “See
Addendum.” The Addendum can include one clause or many. In fact, it is not uncommon to see an
original typed section crossed out (line through the text) and a note saying “See Addendum.” This
gives the contract flexibility so you can add clauses, terms and conditions to the document. Often
you will see such a statement on the Addendum:

“Terms and Conditions: The terms and conditions of this Addendum prevail in the event of a
conflict with the terms and conditions of the attached Agreement of Sale.”

This allows individuals to essentially negate information contained in the original document,
thereby changing the conditions and terms. An Addendum can be very powerful. A well-written
Addendum can provide you with an escape clause, stricter financing conditions, additional rights,
less liability, liquidated damages and even more negotiation power.

Your assignment in this step is to become familiar with real estate contracts and agreements.
Included in this section you will find a Contract for Purchase and Sale form (Buyer’s version). The
annotations below are numbered to correspond with specific sections of the contract and are
designed to help explain portions of the contract or the information requested. If you have
additional questions, call your consultant or seek the advice of a professional in your area.

1. Seller: The seller’s name would be indicated in this section. If the property is held by more
than one party, both names would be included. For example, a husband and wife’s names would be
included as “John Smith & Mary Smith” as Seller.
2. Buyer: The individuals or entities buying the property would have their names here. You
may want to include after your name “and/or assigns.” This will allow you some additional rights of
assignment of the agreement.
3. Legal description: The legal description of the property is not the address, but the legal
description as recorded at the county courthouse. Typically it looks like this: “Lot 208, Plan 4539,
City of Orlando.” If the information is not immediately available, it is common to include in this
section “To be supplied at closing” or “legal description to follow.” You can get the legal
description from the courthouse, from the homeowner’s document of purchase or from the title
company handling the closing.
4. & 5. Street address: The exact address of the property.
6. Items included: You can ask for any items that are in the property but not affixed to it which
may be included in the purchase agreement, such as stoves, refrigerators, washers, dryers, curtains,
pool or patio furniture. These items and their inclusion are negotiable.
7. Purchase price: The purchase price of the property.
8. Deposit to be held: The funds you deposit as “earnest money” can be held by anyone. Often
the seller will want to hold the funds, but you can insist on your accountant, a title company, or
attorney to hold the funds.
9. Amount: The exact amount of money you will deposit with the escrow agent. Obviously you
want to make this amount as small as possible, so as to not tie up your funds. Again, this is
negotiable. The normal deposit is 5% of the purchase price but should never exceed $5,000.
10. Promissory Note: If you need additional funds to secure the property, you may want to
consider giving a promissory note to the seller as an alternative to putting more cash down. The
note is also an agreement that can be held by the escrow agent. If the mortgage is assumable, use the
Payment section b (11-14).
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11. Assumption of Mortgage: In this space indicate the party to assume the mortgage.
12. Interest rate: List the interest rate of the mortgage to be assumed.
13. Principal and Interest: Include the actual amount of the monthly payment that includes the
principal and interest payment. The homeowner should be able to provide this information from
their mortgage payment stubs.
14. Approximate balance: The balance of the mortgage amount should be listed in this section.
The property owner may know the amount or they may have to call the mortgage company to find
out the balance owed. The exact amount is not totally necessary because it will most likely change
prior to closing, because the homeowner will make additional payments prior to closing.
15. Purchase Money Mortgage: This is additional financing of the property which is held by the
seller. List the interest rate for the mortgage.
16. Amount: Spell out the amount to be financed through purchase money mortgage.
Note “other”: You do not have to focus just on cash instruments to purchase a property. More than
one home has been purchased through trade of goods, services and other property. You would
include these other forms of payment in this section.
17. Balance at close: Any cash to be transferred to the seller at closing should be specified here.
Hopefully if you have done your negotiation well this will be “none” or even a rebate.
7. Total: The total should be the same as the purchase price. The Payment sections must add up to
the purchase price.
Financing: If any of the payment is to be financed by a third party the specifics of the financing and
details are spelled out in 18, 19 and 23. If the financing is not met within the time frame outlined,
the contract is null and void.
18. Interest rate: Indicate the maximum interest rate that you would accept.
19. Years: For what period of time (repayment period) shall the note/mortgage be held?
20. On or Before: Do not leave your offers open. Set a specific period of time that the offer is
valid and after which it is void. A period of 24, 48, or 72 hours is not considered unreasonable.
Usually you would put “on or before January 1,1996 at 3:00 p.m.” Create a sense of urgency if you
can, but realize you can always extend the offer or make another offer later.
21. & 22. Closing day, month & year: Specify the closing date. Typically it takes 60 to 90 days
to close on a property. Depending on what you want to do with the property, it may be shorter or
longer.
Restrictions, Easements, Limitations: If there are any restrictions on the property they would be
identified in this section as “other.” In very few cases are there restrictions but they do happen
occasionally. The purpose of the property is often “residential.”
Text: The balance of the contract/agreement is a template of standard clauses and terms to protect
the buyer. Go through the contract and become familiar with the terminology and specific clauses.
This sample contract definitely favors the buyer.
If you use a seller’s contract, realize that the contract may be structured to protect the seller, not
you, the buyer. Review contracts in detail. When it is time to sell the property you will want to use a
different contract, one that favors the seller of the property (you).
Acquiring Approvals: Specifies the exact nature of the use of the property. It is usually residential
but may be for rental or some other objective. Provides another measure of security that you can get
out of the contract if these conditions are not met.
Special Clauses: This section is where you may have added clauses to the contract. Most of the time
you will find “Subject to addendum” or “See addendum.”
Witnesses & Execution: The buyer’s and seller’s signatures must be included to approve the
agreement. If there is more than one owner, get both signatures. Also, the signature of the escrow
agent for the deposit must be included (this could be the seller or whomever receives the escrow
deposit).

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Brokerage Fee: A detailed breakdown and obligation of the brokerage fees to be paid to a broker
can be part of the contract (if you are using a broker). Include this paragraph if appropriate.
Addendum: This is your opportunity to add as many clauses to the contract as you would like to
serve as a guide for the asset transfer. Spell out the specifics of the negotiation and agreement in the
addendum. Make sure you have escape clauses in case you cannot purchase the property or cannot
find another buyer in time. Ask for more concessions.
After you have completed the contract and addendum, fax it to your consultant for review. This is
essential! Especially in the beginning, you should not present a contract without first discussing it
with your consultant. Your consultant will recommend any changes to make your contract stronger,
and will answer any questions you may have.

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Contract for Purchase and Sale (Example)
PARTIES: {____ 1 ____}, as Seller, and {____ 2 ____}, as Buyer, hereby agree that the Seller
shall sell and Buyer shall buy the following legally described property:
I. DESCRIPTION:
a) Legal description of real estate: {____ 3 ____}
b) Street address, if any, of the Property being conveyed is:{____ 4 ____}, {____ 5 ____}
c) Personal property including all buildings and improvements on the property and all rights,
title and interest of Seller in and to adjacent streets, roads, alleys and rights-of-way, and: {___ 6
____}
II. PURCHASE PRICE ${____ 7 ____}
PAYMENT:
a) Cash Deposit(s) to be held in escrow by {____ 8 ____} in the amount of ${____ 9 ____}
and promissory note to be held in same escrow as additional earnest Buyer’s
default in the amount of ${____ 10 ____}
b) Subject to assumption of Mortgage in favor of {____ 11 ____} bearing interest at
{____ 12 ____}% per annum and payable as to principal and interest ${____ 13 ____} per month,
having an approximate present principal
balance of ${____ 14 ____}
c) Purchase money mortgage and note bearing interest at {____ 15 ____}% on terms set forth
herein below, in the principal amount of ${____ 16 ____}
d) Other:
e) Balance to close, (U.S. cash, certified or cashier’s check) subject to
adjustments and prorations: ${____ 17 ____}
TOTAL ${____ 7 ____}
f) All funds held in escrow shall be placed in an interest-bearing account at the direction of
Buyer, with interest accruing to the benefit of Buyer and either applied toward the purchase price at
closing or returned to Buyer in the event and for any reason the transaction does not close.
III. FINANCING: If the purchase price or any part thereof is to be financed by a third party
loan, this Contract for Purchase and Sale is conditioned upon the Buyer obtaining a firm
commitment for said loan within sixty days from the date hereof, at an interest rate not to exceed
{__18__}%; for {__19 __} years; and in the principal amount of ${____ 23 ____} Buyer agrees to
make application for, and to use reasonable diligence to obtain said loan. Should Buyer fail to
obtain same or to waive Buyer’s rights hereunder within said time, Buyer may cancel Contract.
IV. TITLE EVIDENCE: Within twenty days from the date of Contract, Seller shall, at his
expense, deliver to Buyer or his attorney, in accordance with Paragraph Xl, a title insurance
commitment with fee owner’s title policy premium to be paid by Seller at closing.
V. TIME FOR ACCEPTANCE AND EFFECTIVE DATE: If this offer is not executed by both
of the parties hereto on or before {____ 20 ____}, the aforesaid deposit(s) shall be, at the option of
the Buyer, returned to him and this offer shall thereafter be null and void The date of Contract shall
be the date when the last one of the Seller and Buyer has signed this offer.
Vl. CLOSING DATE: This transaction shall be closed and the deed and other closing papers
delivered on the {____ 21 ____} day of {____ 22 ____}, unless extended by other provisions of
Contract, or by written agreement of the Parties
Vll. RESTRICTIONS, EASEMENTS, LIMITATIONS: The Buyer shall take title subject only to:
Zoning, restrictions, prohibitions and other requirements imposed by governmental authority;
Restrictions and matters appearing on the plat or otherwise common to the subdivision; Public
utility easements of record; Taxes for year of closing and subsequent years, assumed mortgages and

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purchase money mortgages, if any; other: _______________________ provided, however, that
none of the foregoing shall prevent use of the property for the purpose of_______________.
Vlll. OCCUPANCY: Seller represents that there are no parties in occupancy other than Seller, but if
Property is intended to be rented or occupied beyond closing, the fact and terms thereof shall be
stated herein, and the tenant(s) shall be disclosed pursuant to Paragraph XVII. Seller agrees to
deliver occupancy of Property at time of closing unless otherwise specified below.
IX. ASSIGNABILITY: Buyer may assign this Contract.
X. TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Typewritten or handwritten
provisions inserted herein or attached hereto as Addenda shall control all printed provisions in
conflict therewith.
Xl. EVIDENCE OF TITLE: Within twenty days from the date hereof, Seller, at Seller’s sole cost
and expense, shall cause a title insurance company mutually acceptable to the Parties to issue and
deliver to Buyer an ALTA Form B title commitment accompanied by one copy of all documents
affecting the Property, and which constitute exceptions to the Title Commitment. Buyer shall give
Seller written notice on or before twenty days from the date of receipt of the Title Commitment, if
the condition of title as set forth in such Title Commitment and survey is not satisfactory in Buyer’s
sole discretion. In the event that the condition of title is not acceptable, Buyer shall state which
exceptions to the Title Commitment are unacceptable Seller shall, at its sole cost and expense
promptly undertake and use its best efforts to eliminate or modify all unacceptable matters to the
reasonable satisfaction of Buyer. In the event Seller is unable with the exercise of due diligence to
satisfy said objections within thirty days after said notice, Buyer may, at its option: (i) extend the
time period for Seller to satisfy said objections, (ii) accept title subject to the objections raised by
Buyer, without an adjustment in the purchase price, in which event said objections shall be deemed
to be waived for all purposes, or (iii) rescind this Agreement, whereupon the deposit described
herein shall be returned to Buyer and this Agreement shall be of no further force and effect.
Xll. EXISTING MORTGAGES TO BE ASSUMED: Seller shall furnish to Buyer within twenty
days from execution hereof a statement from all mortgagee(s) setting forth principal balance,
method of payment, interest rate and whether the mortgage(s) is in good standing. If a mortgage
requires approval of the Buyer by the mortgagee in order to avoid default, or for assumption by the
Buyer of said mortgage, and:
a) the mortgagee does not approve the Buyer, the Buyer may rescind the contract, or
b) the mortgagee requires an increase in the interest rate or charges a fee for any reason in
excess of $500.00, the Buyer may rescind the Contract unless Seller elects to pay such increase or
excess. Seller and Buyer each shall pay 50% of any such fee. Buyer shall use reasonable diligence
to obtain approval. The amount of any escrow deposits held by mortgagee shall be credited to
Seller.
Xlll. PURCHASE MONEY MORTGAGES: The purchase money note and mortgage, if any, shall
provide for a thirty day grace period in the event of default if it is a first mortgage and a fifteen day
grace period in the event of default if a second mortgage; shall provide for right of prepayment in
whole or in part without penalty; shall be assumable and shall not provide for acceleration or
interest adjustment in event of resale of the Property. Said mortgage shall require the owner of the
encumbered Property to keep all prior liens and encumbrances in good standing.
XIV. CURRENT SURVEY: Within fifteen days from the date hereof, Seller, at Seller’s sole cost
and expense, shall furnish a current survey of the Property prepared and certified by a duly
registered Land Surveyor. The survey as to the Property shall:
a) Set forth an accurate legal description; and
b) Locate all existing easements and rights-of-way (setting forth the book and page number of
the recorded instruments creating the same), alleys, streets, and:
c) Show any encroachments; and
d) Show all existing improvements (such as buildings, power lines, fences, etc. ); and
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e) Show all dedicated public streets provided access and whether such access is paved to the
property line; and
f) Show the location of any easements necessary for the furnishing of off-site improvements;
and
g) Be certified to the Seller, the Buyer, the Title Company and any lender that may be involved
in the transaction.
In the event the survey or the recertification thereof shows any encroachments of any improvements
upon, from, or onto the Property, or on or between any building set-back line, a property line, or any
easement, except those acceptable to Buyer, in Buyer’s sole discretion, said encroachment shall be
treated in the same manner as a title defect under the procedure set forth of notice thereof with seller
to pay cost of correction.
XV. TERMITES: The Buyer, within time allowed for delivery of evidence of title and
examination thereof, or no later than ten days prior to closing, whichever date occurs last, may have
the improvements inspected at Buyer’s expense by a certified pest control operator to determine
whether there is any visible active termite infestation or visible existing damage from termite
infestation in the improvements. If Buyer is informed of either or both of the foregoing, Buyer will
have ten days from date of notice thereof within which to have all damages, whether visible or not,
inspected and estimated by a licensed building or general contractor. Seller shall pay valid costs for
treatment and repair of all damage up to 1 ½% of Purchase Price. Should such costs exceed that
amount, Buyer shall have the option of canceling Contract within five days after receipt of
contractor’s repair estimate by giving written notice to Seller, or Buyer may elect to proceed with
the transaction, in which event Buyer shall receive a credit at closing of an amount equal to 1 ½% of
said Purchase Price. <Termites> shall be deemed to include all wood destroying organisms.
XVI. INGRESS AND EGRESS: Seller warrants that there is ingress and egress to the Property
sufficient for the intended use as described in Paragraph Vll hereof the title to which is in
accordance with Paragraph Xl above.
XVII. LEASES: Seller shall, not less than fifteen days prior to closing, furnish to Buyer copies of
all written leases and estoppel letters from each tenant (if any) specifying the nature and duration of
said tenant’s occupancy, rental rates and advanced rent and security deposits paid by tenant. In the
event Seller is unable to obtain such letter from each tenant, the same information shall be furnished
by Seller to Buyer within said time period in the form of a Seller’s affidavit, and Buyer may
thereafter contact tenants to confirm such information. Seller shall deliver and assign all original,
leases to Buyer at closing.
XVIII. LIENS: Seller shall, both as to the Property and personally being sold hereunder, furnish to
Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein,
of any financing statements, claims of lien or potential lienors known to Seller and further attesting
that there have been no improvements to the Property for ninety days immediately preceding date of
closing. If the property has been improved within said time, Seller shall deliver releases or waivers
of all mechanic’s liens, executed by general contractors, subcontractors, suppliers, and materialmen,
in addition to Seller’s lien affidavit setting forth the names of all such general contractors,
subcontractors, suppliers and materialmen and further reciting that, in fact, all bills for work to the
Property which could serve as a basis for a mechanic’s lien have been paid or will be paid at closing
XIX. PLACE OF CLOSING: Closing shall be held in the county wherein the Property is located,
at the office of the attorney or other closing agent designated by Buyer; provided, however, that if a
portion of the purchase price is to be derived from an institutional mortgagee, the requirements of
said mortgagee as to time of day, place and procedures for closing, and for disbursement of
mortgage process, shall control, anything in this contract to the contrary notwithstanding.
XX. TIME: Time is of the essence of this Contract. Any reference herein to time periods of less
than six days shall in the computation thereof, exclude Saturdays, Sundays and legal holidays, and

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any time period provided for herein which shall end on a Saturday, Sunday or legal holiday shall
extend to 5:00 p.m. of the next business day.
XXI. DOCUMENTS FOR CLOSING: Seller shall furnish, at his(her) cost, the deed, closing
statement, mechanic’s lien affidavit, assignments of leases, and any corrective instruments that may
be required in connection with perfecting the title. Buyer shall furnish mortgage, mortgage note,
security agreement, and financing statement.
XXII. EXPENSES: State documentary stamps which are required to be affixed to the instrument of
conveyance, intangible tax on and recording of purchase money mortgage to Seller, and cost of
recording any corrective instruments shall be paid by Seller. Documentary stamps to be affixed to
the note or notes secured by the purchase money mortgage, cost of recording the deed and financing
statements shall be paid by Buyer.
XXIII. PRORATION OF TAXES: Taxes for the year of the closing shall be prorated to the date of
closing. If the closing shall occur before the tax rate is fixed for the then current year, the
apportionment of taxes shall be upon the basis of the tax rate of the preceding year applied to the
latest assessed valuation. Subsequent to the closing, when the tax rate is fixed for the year in which
the closing occurs, Seller and Buyer agree to adjust the proration of taxes and, if necessary, to
refund or pay, as the case may be, an amount necessary to effect such adjustments. This provision
shall survive closing.
XXIV. PERSONAL PROPERTY INSPECTION, REPAIR: Seller warrants that all major
appliances, heating, cooling, electrical, plumbing systems, and machinery are in good working order
and free of any defects. Said warranty shall survive the closing.
XXV. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing,
and the costs of restoring same does not exceed 3% of the assessed valuation of the improvements
so damaged, cost of restoration shall be an obligation of the Seller and closing shall proceed
pursuant to the terms of Contract with costs therefor escrowed at closing. In the event the cost of
repair or restoration exceeds 3% of the assessed valuation of the improvements so damaged, Buyer
shall have the option of either taking the Property as is, together with either the said 3% or any
insurance proceeds payable by virtue of such loss or damage, or of canceling the Contract and
receiving return of deposit(s) made hereunder.
XXVI. MAINTENANCE: Notwithstanding the provisions of Paragraph XXIV, between Effective
Date and Closing Date, all personal property on the premises and real property, including lawn,
shrubbery and pool, if any, shall be maintained by Seller in the condition they existed as of
Effective Date, ordinary wear and tear excepted, and Buyer or Buyer’s designee will be permitted
access for inspection prior to closing in order to confirm compliance with this standard.
XXVII. PROCEEDS OF SALE AND CLOSING PROCEDURE: The deed shall be recorded
upon clearance of funds and evidence of title continued at Buyer’s expense, to show title in Buyer,
without any encumbrances or change which would render Seller’s title unmarketable from the date
of the last evidence, and the cash proceeds of sale shall be held in escrow by Seller’s attorney or by
such other escrow agent as may be mutually agreed upon for a period of not longer than five days
from and after closing date. If Seller’s title is rendered unmarketable, Buyer shall within said five
day period, notify Seller in writing of the defect and Seller shall have thirty days from date of
receipt of such notification to cure said defect. In the event Seller fails to timely cure said defect, all
monies paid hereunder shall, upon written demand therefor and within five days thereafter, be
returned to Buyer and, simultaneously with such repayment, Buyer shall vacate the Property and
reconvey same to the Seller by special warranty deed. In the event Buyer fails to make timely
demand for refund, he shall take title as is, waiving all rights against Seller as to such intervening
defect except as may be available to Buyer by virtue of warranties, if any, contained in deed.
XXVIII. ESCROW: Any escrow agent receiving funds is authorized and agrees by acceptance
thereof to promptly deposit and to hold same in escrow and to disburse same subject to clearance

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thereof in accordance with terms and conditions of Contract. Failure of clearance of funds shall not
excuse performance by the Buyer.
XXIX. ATTORNEY FEES AND COSTS: In connection with any litigation including appellate
proceedings arising out of this Contract, the prevailing party shall be entitled to recover reasonable
attorney’s fees and costs.
XXX.(a) DEFAULT BY SELLER: In the event that Seller should fail to consummate the
transaction contemplated herein for any reason, except Buyer’s default; (i) Buyer may enforce
specific performance of this Agreement in a court of competent jurisdiction and in such action shall
have the right to recover damages suffered by Buyer by reason of the delay in the acquisition of the
Property, or (ii) may bring suit for damages for breach of this Agreement, in which event, the
deposit made hereunder shall be forthwith returned to Buyer, or (iii) declare a default, demand and
receive the return of the deposit. All rights, powers, options or remedies afforded to Buyer either
hereunder or by law shall be cumulative and not alternative and the exercise of one right, power,
option or remedy shall not bar other rights, powers, options or remedies allowed herein or by law.
XXX.(b) DEFAULT BY BUYER: In the event Buyer should fail to consummate the transaction
contemplated herein for any reason, except default by Seller or the failure of Seller to satisfy any of
the conditions to Buyer’s obligations, as set forth herein, Seller shall be entitled to retain the earnest
money deposit, such sum being agreed upon as liquidated damages for the failure of Buyer to
perform the duties and obligations imposed upon it by the terms and provisions of this Agreement
and because of the difficulty, inconvenience and uncertainty of ascertaining actual damages, and no
other damages, rights or remedies shall in any case be collectible, enforceable or available to Seller
other than as provided in this Section, and Seller agrees to accept and take said deposit as Seller’s
total damages and relief hereunder in such event.
XXXI. MEMORANDUM OF CONTRACT RECORDABLE, PERSONS BOUND AND NOTICE:
Upon the expiration of the inspection period described in paragraph XXXVI, if Buyer has elected to
proceed with purchase of the property, the parties shall cause to be recorded, at Buyer’s option and
expense, in the public records of the county in which the property is located, an executed
Memorandum of Contract as attached hereto. This Contract shall bind and inure to the benefit of the
Parties hereto and their successors in interest. Whenever the context permits, singular shall include
plural and one gender shall include all Notice given by or to the attorney for either party shall be as
effective as if given by or to said party.
XXXII. PRORATIONS AND INSURANCE: Taxes, assessments, rent, interest, insurance
and other expenses and revenue of the Property shall be prorated as of date of closing. Buyer shall
have the option of taking over any existing policies of insurance on the Property, if assumable, in
which event premiums shall be prorated. The cash at closing shall be increased or decreased as may
be required by said prorations. All references in Contract to prorations as of date of closing will be
deemed <date of occupancy> if occupancy occurs prior to closing, unless otherwise provided for
herein.
XXXIII. CONVEYANCE: Seller shall convey title to the Property by statutory warranty deed
subject only to matters contained in Paragraph Vll hereof and those otherwise accepted by Buyer.
Personal property shall, at the request of Buyer, be conveyed by an absolute bill of sale with
warranty of title, subject to such liens as may be otherwise provided for herein.
XXXIV. UTILITIES: Seller shall, at no expense to Seller, actively work with Buyer to assist
Buyer in obtaining electricity, water, sewage, storm drainage, and other utility services for
development of the Property.
XXXV. ENGINEERING PLANS AND STUDIES: Upon the execution hereof, Seller shall
furnish to Buyer all engineering plans, drawings, surveys, artist’s renderings and economic and
financial studies which Seller has, if any, relating to the Property, and all such information may be
used by Buyer in such manner as it desires; provided that in the event Buyer fails to purchase the

21
Property for any reason other than Seller’s default, all such information shall be returned to Seller
together with any information that Purchaser may have compiled with respect to the Property.
XXXVI. INSPECTION OF PROPERTY: Buyer shall have sixty (60) days from the date
hereof to determine the elevation, grade, and topography of the Property and to conduct engineering
and soil boring tests as the Buyer deems necessary in order to determine the usability of the
Property. Buyer may in its sole and absolute discretion, give notice of termination of this
Agreement at any time prior to the expiration of the sixty day inspection period, and upon such
termination, all deposits held in escrow shall be returned to Buyer.
XXXVII. PENDING LITIGATION: Seller warrants and represents that there are no legal
actions, suits or other legal or administrative proceedings, including cases, pending or threatened or
similar proceedings affecting the Property or any portion thereof, nor has Seller knowledge that any
such action is presently contemplated which might or does affect the conveyance contemplated
hereunder.
XXXVIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: The representations
and warranties set forth in this Contract shall be continuing and shall be true and correct on and as
of the closing date with the same force and effect as if made at that time, and all of such
representations and warranties shall survive the closing and shall not be affected by any
investigation, verification or approval by any party hereto or by anyone on behalf of any party
hereto.
XXXIX. ACQUIRING APPROVALS: The obligation of Buyer to close is conditioned upon
Buyer’s having acquired all the necessary approvals and permits to use the property for
______________________________________________________________________________
XL. OTHER AGREEMENTS: No prior or present agreements or representations shall be
binding upon any of the Parties hereto unless incorporated in this Contract. No modification or
change in this Contract shall be valid or binding upon the Parties unless in writing, executed by the
Parties to be bound thereby.
XLI. SPECIAL CLAUSES:
Witnesses Executed by Buyer on: ______________

Buyer
Buyer
Executed by Seller on:__________
Seller
Seller
Deposit(s) under II(a) received, if check, subject to clearance, and terms hereof are accepted. By
___________________________________________ (Escrow Agent)
BROKERAGE FEE: Seller agrees to pay the registered real estate Broker named below, at time of
closing, from the disbursements of the proceeds of sale, compensation in the total amount of
___________% of gross purchase price of $ __________________ for his services in effecting the
sale by finding a Buyer, ready, willing and able to purchase pursuant to the foregoing Contract. In
the event Buyer fails to perform and deposit(s) is retained, 50% thereof, but not exceeding the
Broker’s fee computed, shall be paid to the Broker as full consideration for Broker’s services
including costs expended by Broker, and the balance shall be paid to Seller. If the transaction shall
not be closed because of refusal or failure of Seller to perform, the Seller shall pay said fee in full to
Broker on demand. Seller agrees to indemnify, defend and hold Buyer harmless from and against
all claims or demands with respect to any brokerage fees or agent’s commissions or other
compensation asserted by any person or entity in connection with this agreement or the transaction
contemplated herein.
Broker Seller: ______________________________ Seller: ____________________________

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Calling Sellers
We initially said that you should not call any ads that are long and flowery and contained
descriptions of the amenities of the property. However, to build your confidence in talking to
sellers, we recommend that you begin your calls to sellers by calling about these ads. There is no
pressure because you know you are most likely not going to proceed with the transaction. This is
valuable experience in honing your skills.

After you have experienced a few calls, start calling the sellers who have some motivation. Use the
ABC rating system to arrive at a priority system. Call those with the letter “A” first, those with a
“B” second, and, if you have time, those with a “C.” You should call at least 10 Sellers to complete
this exercise. When you have completed this, review the Real Estate Information Sheets that you
have filled in, and pick out the three best potential deals. Identify why you think they are the best. Is
it the price, the terms, or a combination of the two?

Use a Coach to Help You Pick the Winners


Next, call your consultant to help you determine whether these have the potential to be good
bargains or whether to drop them and start making more phone calls. Keep in mind you have more
local knowledge than our consultants, but your consultant has a wealth of real estate experience
with which to assist you.

Do not get involved in the emotion of trying to make your first deal. If the parts do not fit, just say
to yourself, “NEXT,” and move on to another property.

Get a Realtor on Your Team


As a part of your long-range real estate investment strategies, you will need to have a Realtor or a
title company on your team. They can provide you with information regarding market trends and
can assist you in establishing fair market values on properties you are pursuing.

These professionals have access to databases that can run “comps” in the area of the property in
which you are interested. The word “comps” means comparable sales in an area. These are houses
that have been sold and closed in the last six months, not properties that are merely listed or for sale.
Many sellers list properties too high knowing that the potential Buyer will want to negotiate a lower
price. For the best estimate of fair market value, average the selling price per square foot of
comparable homes and multiply that figure times the square footage of the property you are
considering.

Why should a Realtor agree to run comps for you when he/she is not going to receive a
commission? There are several reasons. First, there may be properties that have listing agents which
allow you to have your own agent. Second, in your pursuit of FSBO properties, if you find homes
that don’t meet your investing criteria, you could inform the Realtor of a potential listing. Third,
you will want to buy foreclosure properties in the future and the Realtor can collect a commission
by representing you. Fourth, when you pursue a “fix-up” property the Realtor will earn a
commission when you buy it and could list the property after you have done the repair work. Title
companies will benefit when you enlist them to handle the closings for your real estate transactions.

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In a number of cases we suggest that you work with the owner directly. The key reasons to do your
own negotiations are to ensure that you are represented correctly and to reduce the cost of the
transaction. However, Realtors can be a great asset if they understand what you are looking for and
are prepared to work with you in the acquisition of the property. Spend time finding a good and
flexible Realtor or title company that understands your plan and is prepared to work with you.
Make them part of your team. They can be a key to your success.

Visit the Court House


The county courthouse is a valuable source of information when it comes to real estate investing.
You will use the courthouse to find out a wide range of information in the public records, including:
Foreclosure information
Mortgage information
Seller take-backs
Tax assessment information
Delinquent taxes
Liens
Judgments
Civil suits (such as divorces)

Your assignment is to visit your local courthouse and become familiar with how to go about
researching this type of information. Begin by calling the courthouse to get directions and the room
number of the land records office. If your courthouse does not have a land records office, ask where
they keep the O.R. (Official Records) Books, and where documents such as deeds, mortgages, deeds
of trust, etc. are recorded. Begin by researching all of the information recorded on your personal
residence. Then research any properties you are considering. Don’t be afraid to ask a clerk for
assistance. Clerks are usually very friendly and will go out of their way to help you. If they are
unavailable, ask some of the people who are there conducting research to help you.

Inspect Properties
Personally inspecting a property is not meant to replace an inspection by a certified inspector. The
professional inspection report will be part of your offer should you decide to proceed, so use your
visit to the property as a means of negotiating a better price with the seller.

After determining that you want to pursue a property, call the seller back and set up a time to view
the house. Arrive at the appointment on time, but not early. You do not want to appear too anxious
to see the property. Take a clipboard, note pad, pen, flashlight, marble and tape measure along with
you. These will be very valuable in providing you with support for your offer.

Use the visit to do three things: to find any problems with the house, to let the seller know you see
the problems and to get to know the seller. It is much easier to assess the seller’s motivation and
learn personal information when you are face-to-face with a person. Ask good questions and make
sure you are a great listener. Many times, you can gather facts from the visit that will help you put
the deal together, facts that you would never have gotten over the phone.

Remember, like so many other encounters you have in life, this is a sales situation. Take advantage
of it! Establish a relationship with the seller that will put you above any other buyers. It is not

24
unusual for one of our members to close a deal and tell us that the seller said to him/her, “I would
not have accepted this offer from anyone else, but you seem like the type of person who will take
care of our property. You listened to our situation and structured an offer that would take care of all
of our needs.” This is a WIN-WIN situation, and it works!

Write an Offer
You now have gathered enough information to sit down and determine whether or not the property
is attractive enough to warrant an offer. You should have obtained the comps in the surrounding
area and made sure that the house you are considering is within the price range of those that have
recently sold. (Refer to the chart, “Evaluating A Property,” on the next page.) Here’s a tip — buy
the cheapest house in the neighborhood; it will have the greatest potential for appreciation. The
highest priced properties will establish the upper end of the market and everything below will move
upward accordingly.

If you cannot find any comps in the area, find out the assessed value of the property by calling or
visiting the tax assessor’s office in your city or county. Although a less accurate guide to use in
preparing an offer, the assessed value, as a general rule, is usually 80-85% of the fair market value.
Another alternative, when you do not have comps, is to cruise the neighborhood for other houses for
sale. Find out the prices, the square footage, number of bedrooms and baths and any other amenities
of similar homes in the area. Determine the price per square foot and then multiply that figure by
the square footage of the home you are considering. Make sure you discount that asking price per
square foot by at least 10% for a closer estimate of fair market value.

When you inspect the property, determine how much work needs to be done. If you are a beginning
investor, stay away from “fixer-uppers.” These can erode your capital very quickly and should be
considered only by experienced investors. Stay away from situations like those experienced in the
movie “The Money Trap!” Cosmetic repair work, such as painting, cleanup and landscaping, is
okay. You can make up the cost of the repairs by negotiating a better price with the seller.

Above all, make sure the offer you are planning to present meets the criteria for a good deal. You
are using real estate as an investment to achieve your financial goals. Does the deal fit the 10/10/10
Rule, the 80% or Less Ideal, or the Return on Cash Out of Pocket criteria?.

Prepare your offer using the Contract for Purchase and Sale form you have developed. No matter
what form you use, make sure that you attach an addendum to it. In the addendum, you should
insert any number of “escape clauses” that can be used to limit or totally eliminate your liability
should you choose to cancel the contract. Call your consultant, and discuss the document before you
present it to the seller.

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Evaluating Comparable Properties
Comparable Properties:

# of # of Sq. Date # weeks Listing Selling Price/


bedrms baths ft. sold on mkt. price price sq. ft.
1. ____ ____ __________ ____ _______ _________ __________ ________

2 ____ ____ __________ ____ _______ _________ __________ ________

3 ____ ____ __________ ____ _______ _________ __________ ________

4 ____ ____ __________ ____ _______ _________ __________ ________

5 ____ ____ __________ ____ _______ _________ __________ ________

Totals: _________ __________ ________

Averages: _________ __________ ________

Target Property:

# of # of Sq. Date # weeks Listing Selling Price/


bedrms baths ft. sold on mkt. price price sq. ft.
______ ____ __________ ____ _______ _________ __________ ________

Making the Offer to the Seller


Once you have completed the contract and addendum, and have reviewed it with your consultant,
you should call the seller and set up an appointment to present the offer. The seller will probably
want to meet at his or her house, which is fine. Just make sure if there are multiple owners (such as
husband and wife), that they are all present for the meeting. You want to get their reactions at the
same time and to observe their body language, as well as listen to what they have to say.

When you arrive at the seller’s house, find some common areas of interest and establish rapport
through small talk. If possible, use the kitchen as the meeting place because it is usually a very
comfortable environment for the seller.

Verbally present how you arrived at your offer by referring to the comps in the area, the fix-up work
that is required and the fact that you have discounted the price by the amount of the real estate
commission paid on other recently sold properties in the area. You should explain that the sellers of
the other homes netted a lower number because of the commission, and that your offer is
comparable to what those sellers received.

Highlight the features of your offer verbally, then present the formal contract to the seller(s) for
their review. Give them ample time to read it thoroughly. Do not speak until they make some
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remarks or ask questions. Listen intently to what they are saying and notice how they are sitting.
Are they interested in moving forward with your offer, or are they just going through the motions?
If the seller(s) are ready to accept the offer — GREAT! Get them to sign the contract, thank them
and leave. If they are not ready, write down any and all comments from the seller(s). Do not
comment on them individually because at this juncture, you may or may not know whether they are
“deal points” (items that could potentially make or break the deal).

Since timing is everything, if you are very close to finalizing the deal, negotiate the final details
with the sellers and modify the offer accordingly.

If it appears that the offers are far apart or if you are unclear about their counter-offer, gather up
your items when the sellers are finished with their comments and express sincere disappointment
that they did not accept your offer. Tell them you will have to consider their comments, and that if
you want to proceed, you will be back in touch with them. By doing this, you regain control of the
negotiations, and leave the seller(s) unsure about whether they can make a deal.

Review the Situation and Options


Go back to your office and call your consultant. Discuss how the meeting went, the comments from
the seller(s) and get feedback from the consultant. The offer and counter offer process can go on for
days or weeks, so don’t get anxious. Proceed with the deal until you have a signed contract or reach
an impasse. If the deal dies, put the names of the seller(s) in a database with a note to follow up in
one or two months, because even though you were unsuccessful this time, their motivation could
change over time.

Build a List of Buyers


If your initial strategy is to create capital through contract assignments, or “flips,’’ it will become
very important for you to build a list of buyers. The power in building a database of buyers is that it
becomes a never-ending circle — you find the properties and locate the buyers, you have the
buyers and you find the property. This strategy can help you tremendously in building your capital
in order to invest in more long-term strategies.

After a property is placed under contract, you will need to run an ad to sell your rights under the
contract to another person at a nice profit. For example, let’s say 20 people respond to your ad and
are interested in viewing the property. Set up a meeting with these people, all at the same time. Each
of them will want to be first in line to see the property and make their best deal. Take control of the
situation. As each group views the property, the “electricity” will grow. Who will be able to make
the best offer and buy the property? Negotiate with each potential buyer and make the deal with the
highest bidder.

What do you do with all of the other people? You get information from them on what would better
suit their needs. If this particular house is not the right one for them, what will make them happy?
Take notes and make sure you have their phone number. Tell them you are a real estate investor
who deals in many properties and will most likely come across the type of property they are looking
for in the near future. If you don’t have any other properties under contract at the time, go out and
find the right property for the people. You now have a list of people who are interested in buying
and you know exactly what they are looking for.

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Develop a system for filing the information that works for you. There are a variety of database
software packages available for personal computers, or you can create your own filing system. The
important part with whatever system you choose is that you can quickly retrieve the information
when you need it.

Build Your Credit


As a real estate investor, credit is an important asset. You must know how to use it wisely, how to
increase your credit lines and how to correct any errors in your credit file. Begin by contacting one
of the three main credit reporting agencies listed below.

TRW: 1-800-682-7654
Equifax: 1-800-525-6285
TransUnion: 1-800-851-2674

After you receive the reports, review them carefully. If you find any errors, call the agencies back
with the dispute and follow up in writing. You don’t ever want to be in a position where you were
denied credit for something that was mistakenly stated on your credit report.

Do you know what interest rate you currently pay on your credit cards? What are your credit limits?
Do you have to pay annual fees? You may not be aware of this, but often all of these items are
negotiable. Credit is a very competitive business, and the credit card companies want to keep your
business. Compile a list of all your current credit cards and indicate the credit limits, interest rates,
annual fees and phone numbers for each card.

The next step is to increase your available credit and to reduce the costs for that credit. Review the
Credit Maximizer Checklist and take steps today to make the most of this valuable asset.

Credit Maximizer Checklist


Credit Cards. Accept any “pre-approved” credit card offers that you receive in the mail. If you have
had any credit problems in the past, apply for secured credit cards that offer credit limits two-and-a-
half to three times the security deposit.

Increase Credit Card Limits. Contact your current credit card companies and ask for a credit limit
increase. If you have paid your account regularly, most companies will extend additional credit to
you upon request.

Lower Interest Rates/Fees on Credit Cards. Ask your credit card companies to drop the annual fee
or lower their interest rate. Inform them that you are considering using other cards that have lower
fees/rates and are planning to transfer the balance over to these cards but would prefer using their
card if they would lower the rates.

Home Equity Lines/Loans. Apply for lines of credit based on the equity in your home. One of the
benefits of using home loans or equity lines for financing is that the interest is most likely
deductible. (Check with your tax professional.)

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Lines of Credit. Based on your personal credit history, you can establish pre-approved secured or
unsecured lines of credit. Contact your bank or area lending institutions for more information.

Life Insurance/Retirement Plans. An often overlooked source of capital is “cash value” on life
insurance policies and monies in various retirement plans. You can borrow against these cash values
at often a very low interest rate. Retirement plans such as 401(k)s generally have loan provisions
allowing you to borrow up to 50% of the money in the plan without tax penalties.

Develop Bank Relationships


The next step in increasing your available capital is to develop your banking relationships. The next
time you go to your bank to make a deposit or withdrawal, go inside and introduce yourself to the
branch manager. Mention that you have an account with the bank and would like to meet with
him/her, if possible, over lunch to discuss future business with the bank.

When you have lunch or meet with the branch manager, explain that you are becoming a real estate
investor. Your short-term goals are to increase your capital base with the idea that you would like to
have some term investments within the next year. Ask the manager what the bank has in the way of
secured and unsecured lines of credit, construction loans and permanent loans on investment
property. Your objective is to not ask for any loan commitments right then, but rather to set the
stage for future business with the bank and, if possible, to find out the manager’s loan limits. Loan
limits are the dollar amounts the branch manager is authorized to make without loan committee
approval.

Follow up regularly and keep the manager informed as to your real estate investments and the
possible timing of your future loan requests.

Check out the Money To Lend Sections of your paper


Another source of funds to use in your real estate investments can be found in the newspaper under
the “Money Available” and “Money to Lend” sections of the classified ads. Although this is a less
desirable alternative to seller financing or dealing with your banker, if you find the right type of
property where you need short-term funds, this may be the right vehicle for you.

This type of money is usually very expensive to borrow. These lenders know that when you come to
them, you have exhausted all conventional means, so they know they can charge a premium for
their funds. But, this is not necessarily bad news. Although the cost of the funds is expensive, if you
have located a piece of property that can be flipped in a relatively short time and cannot get it
financed otherwise, it may well be worth paying the higher interest rate. Don’t say you categorically
will not pay that higher rate — a lesser profit on any particular deal is better than no profit at all!
In addition, these lenders usually know of other investors who are interested in joint venturing on
properties, if it meets their criteria. They may be willing to put up equity money to get a share of the
profits when the property is sold. Don’t hesitate to ask about any other programs that may be
available.

Before you embark on any unconventional methods, call your consultant. He or she will point out
the pitfalls and roadblocks you will encounter, and help you structure a way to proceed that will
both protect your capital and restrict or eliminate your liability.

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Build Your Team
In addition to your consultants, you will need to build a team of professionals to assist you with
your real estate investments. How do you find the right professionals? Network! Contact real estate
professionals, distribute business cards, attend networking events, become active in your local
Chamber of Commerce and get to know the key people in your community.

In addition to networking, we recommend that you start with the Realtor with whom you have
aligned yourself. The Realtor should have many contacts and be able to point you in the right
direction to locate the best accountant, property management group, real estate attorneys and title
companies.

When you interview the attorneys, make sure their specialty is real estate. Ask the attorney about
the experience they have had and whether they invest in real estate. If they do not have their own
holdings, do they know of other investors who are willing to joint venture on prudent deals? Also, a
good real estate attorney should be able to recommend good accountants and property managers.

Title companies will be a valuable addition to your team. A title company can answer many of your
questions, even legal ones, provide you with necessary forms and run comps on properties you are
considering. In general, title companies are less expensive in closing transactions than attorneys, so
use the attorney for specific legal advice and have the title companies do the closings.

After establishing your team, don’t spend a lot of time and money conferring with these
professionals, but have them in the wings for any situation you may encounter.

Check Out The For Rent Sections


When searching the classified ads for motivated Sellers, one of the most overlooked and underrated
areas is the “For Rent” section. After you have finished looking under the “For Sale” section of
FSBO ads, check out the “For Rent” classifieds.

What shows motivation in these ads? If the ads state “Lease Option” or “Lease with an Option to
Purchase” call the property owners. For one reason or another, the owners do not want to own the
property anymore. Maybe they are moving and no longer want to manage the property; maybe they
are having problems getting the right tenants; maybe they want to get their equity out of the
property; or maybe their accountant has told them their tax situation no longer warrants the
continued ownership of the property. Whatever the reason, it spells opportunity for you.

There are plenty of ways to have lease options work for you. One is a sandwich lease option. A
sandwich lease option puts you in the middle, where you can make a significant cash flow from the
rental portion and even more when the property is sold to the lease option tenant.

If you are looking in this area because you want investment property, there is a quick way to go
through an initial valuation called the gross rent multiplier. If the ad contains the rental income and
the asking price, take the annual income times seven (the gross rent multiplier) and compare the
total to the price. If the answer from the gross rent multiplier is more than the price, follow up on
the ad. If not, forget it; the numbers probably will not work on the property. Just remember, this is

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an initial evaluation. We need to gather much more information before determining whether this is a
sound investment.

Calling on the other “For Rent” ads can generate great leads. When you call on these ads, the first
question you should ask is, “Would you be willing to sell the property rather than lease it?” If the
answer is yes, or if there is a significant pause on the other end of the phone, start asking more
questions. You have probably found a motivated seller who, because of his or her tax situation, may
be very amenable to considering seller financing as part of the purchase price. The seller may want
to take the money over a period, because of the depreciated basis in the property, and minimize the
tax consequences for the present year. If the property owner is unaware of this strategy, ask him or
her to explore the situation with an accountant. You may find a seller who is more motivated than
you originally thought!

Look for Foreclosure Properties


If you live in a state where lenders gain possession of a property through foreclosure, you will want
to become familiar with auctions. Working in the foreclosure market is an advanced strategy and
generally requires some available capital, so if you are just starting out, this will be a learning
exercise that you can put to use at a later date.
As a real estate investor, you will learn about the three stages of foreclosure:
Pre-foreclosure
The auction
REOs (Real Estate Owned where the lender is the successful bidder at the auction)

If you become interested in buying properties at the auctions, you must become intimately familiar
with the auction process and the rules associated with it. Before you attend one, call ahead and get
the financial requirements. Do they want all cash or is a deposit suitable? Does the payment have to
be certified? What is the time frame to make good on your pledge? What are the penalties to the
successful bidder for non-performance?

This is not a strategy for novices — that is why we recommend that you first attend an auction. If
you want to bid on a particular property, you need to do a title search at the courthouse to determine
any and all items that are attached to it. Is the first mortgage holder foreclosing, or is it one of the
junior mortgage holders? Are there any liens, judgments, or delinquent taxes recorded? Do this in
order to get the full picture of the indebtedness against the property. Some of the information may
become moot if the first mortgage is foreclosing because there may not be enough to pay all of the
others, and that debt will simply be erased.

The auction seldom lasts more than a minute or two. Someone representing the party that is
foreclosing on the property is there, along with anyone else who may want to bid. If you want to
bid, make sure you have a maximum amount that you would pay for the property. NEVER exceed
that amount. Emotions can run high in these situations and you don’t want to get caught up in it.
Enjoy the experience and evaluate whether it is something you would like to get involved in in the
future. People have made tremendous amounts of money working the foreclosure market and it
might be right up your alley.

This booklet was designed as a guide to help you get started in the field of real estate investing. At
this point in the program, you should have established a firm foundation and closed on at least your
first property. Now is the time to explore more advanced strategies and opportunities
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Creative Financing is a Key!
Professional real estate investors know the power of investing is not always finding the bargain but
finding the best “terms.” Creative financing is a key to success in real estate investing. The cheaper
you can borrow money, the longer you can extend payments, or the smaller the down payment, the
greater the leverage you can build in your portfolio. Leverage is the key to wealth building and your
goal should be to tie up as many properties as possible with the least amount of out-of-pocket cash.
If you are buying a property, look to seller take-back and second mortgage financing. Consider
balloon payments in five or 10 years or even a single payment mortgage. Negotiate for points and
closing costs to be paid by seller. Explore principal-only payment options to increase cash flow, or
trade of assets in lieu of down payments.

Expand your networking by getting to know bankers and mortgage lenders who handle REOs (Real
Estate Owned) properties. Bankers, mortgage lenders and Realtors will become your best sources
for commercial, retail, office and industrial properties.

In addition to single-family homes, consider other areas of real estate investing to diversify your
portfolio. Below are additional possibilities with comments regarding each type:

Duplexes, triplexes — Particularly for the beginning investor, duplexes and triplexes are usually
excellent buys because they sell for less per unit than comparable single-family homes. Unlike
single-family homes, your chances of having no rental income from the property due to vacancies
are cut in half or thirds because of the multiple units. Renters of duplexes and triplexes generally
take good care of the property because of the single-family residence feel of the property.

Condominium townhouses — These are generally easy to maintain and have lower maintenance
costs than high-rise condominium units. As with duplexes, the tenants tend to take care of the
properties more than tenants of apartment complexes or high-rises.

Raw land is expensive to develop, which can result in negative cash flows. As investment property,
raw land can be speculative and may necessitate a long-term investment in order to achieve any
significant return.

Industrial — Industrial property can be adversely affected by economic downswings, but generally
requires less capital than comparably-sized retail and office properties. Since the industrial market
is generally a smaller, more selective market, you will need to know the best means of advertising
to acquire tenants. Seek long-term leases, particularly with larger clients, and negotiate personal
endorsements for these leases.

Retail/office — Location is paramount for retail and office properties. You will need to factor in the
cost of any build-outs and tenants’ finish work in your cash flow projections, and have a thorough
understanding of the rental rates and incentives offered by other retail/office buildings in the area.
Decide whether to target several smaller business or stores for tenants or a few larger clients.

Apartments — Apartment complexes are logical next steps for people who own duplexes or
triplexes. Larger apartment buildings will require on-site management, which will necessitate a
more hands-on approach or the added expense of hiring a professional management company. The
majority of apartment renters are the under-40 crowd and they tend to select the newer apartment
complexes, so appealing to this crowd may require frequent renovation of the property.
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